Sprint Corporation and Subsidiaries, f.k.a. United Telecommunications, Inc. - Page 1

                                   108 T.C. No. 19                                    

                               UNITED STATES TAX COURT                                

                        SPRINT CORPORATION AND SUBSIDIARIES,                          
                F.K.A. UNITED TELECOMMUNICATIONS, INC., Petitioner v.                 
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 13159-94.                   Filed April 30, 1997.           

                    P, a telephone company, purchased certain                         
               telecommunications equipment, digital switches, that                   
               required computer software to operate.  P claimed                      
               investment tax credits (ITC) and depreciation                          
               deductions under the accelerated cost recovery system                  
               (ACRS) with respect to the total cost of each digital                  
               switch, which included the cost of the software used in                
               each switch.  R determined that P's expenditures                       
               allocable to the software did not qualify for the ITC                  
               or depreciation under the ACRS.                                        
                    P treated property known as “drop and block” as                   
               5-year property, as defined in sec. 168(c)(2)(B),                      
               I.R.C.  R determined that the property was 15-year                     
               public utility property.  For the years in issue, the                  
               property was depreciated under the ACRS.                               
                    1.  Held:  P's expenditures allocable to the                      
               software qualify for the ITC and depreciation under the                

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